Dive Brief:
- In its fourth quarter and fiscal year 2015 earnings, ConAgra Foods, Inc. announced it would be leaving the private brands sector, which the company joined after completing its acquisition of private label manufacturer Ralcorp Holdings in 2013. In a statement, CEO Sean Connolly called the market segment a "suboptimal use of our resources" and said the company would seek to divest the private brands operations.
- Consumer goods and commercial foods saw operating profit growth for the quarter after adjusting for items impacting comparability, including an extra week in the quarter which benefited the company's results. Connolly said that ConAgra would sharpen its focus on this segment going forward.
- Connolly, in his first earnings statement since taking over as CEO this spring, outlined a long-term plan for the company's future, which has struggled as several of its brands saw decreased sales due in part to changing consumer preferences. He said in a statement that the company going forward would take "a more aggressive approach to driving margin improvement through SG&A reductions, supply chain efficiencies and other projects. [...] We expect to continually refine our portfolio with prudent divestitures and acquisitions, and there will be a strong emphasis on deploying capital in ways that benefit shareholders."
Dive Insight:
The planned divestiture of ConAgra's private brands segment — "to prevent further distraction," according to Connolly — comes as no surprise. Earlier this month, activist investor Jana Partners LLC announced it owned 7.2% of the company's shares, roughly a $1.2 billion stake, and advised ConAgra to rid itself of the private brands segment and instead focus on reviewing assets, cutting costs, and improving operational performance. In that statement, Jana also suggested three board member nominees to assist the company moving forward.
Instead, ConAgra will renew its focus on its consumer brands. Jonathan Feeney, an analyst at Athlos Research, a Pennsylvania firm covering the food and beverage industry, called this an opportunity for ConAgra, saying that, "The company could invest in advertising, improve quality and target a more 'upmarket' shopper as consumers look for more natural and less processed choices," Omaha.com reported.
Also no surprise is ConAgra's new cost-cutting initiative as outlined in its new strategy. This has been a common thread for many processed foods companies who are seeing decreased sales for their consumer brands due to consumers' shift to healthier, simpler, and cleaner foods. These companies are looking inward and cutting costs to make up for some of those lost sales while devising new plans for products and marketing to combat the sales drops. Companies are also adjusting their ingredients, such as removing artificial additives, and ConAgra's own approach has included introducing a line of Healthy Choice frozen entree products without artificial ingredients.
Connolly said in a statement, "The underlying objective of the new strategic direction we are sharing today is long-term shareholder value creation. While we have a high degree of conviction in our plans, we also acknowledge that markets and opportunities change over time. For this reason, our management team and our board of directors approach long-term plans in a practical and flexible manner. If we are convinced that some other set of opportunities, or some other course of action, improves our outlook or will better reward shareholders, we will adapt our plans accordingly."